Management Accountants’ Role in Accounting for Sustainability Vinal Mistry University of Waikato New Zealand. Umesh Sharma* Department of Accounting Waikato Management School PB 3105 Hamilton New Zealand Email: [email protected]z Mary Low Department of Accounting Waikato Management School PB 3105 Hamilton New Zealand Email: [email protected]*Corresponding author Paper presented at the 2 nd Sustainability Accounting Research Symposium in Hamilton, New Zealand. 31 August 2012.
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Management Accountants’ Role in Accounting for Sustainability
Vinal Mistry University of Waikato New Zealand. Umesh Sharma* Department of Accounting Waikato Management School PB 3105 Hamilton New Zealand Email: [email protected] Mary Low Department of Accounting Waikato Management School PB 3105 Hamilton New Zealand Email: [email protected] *Corresponding author Paper presented at the 2nd Sustainability Accounting Research Symposium in Hamilton, New Zealand.
31 August 2012.
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Management Accountants’ Role in Accounting for Sustainability
Abstract Purpose – The purpose of this paper is to explore the role of management accountants in
accounting for sustainable development in New Zealand businesses. This study extends the
literature on the role that management accountants play in sustainable development.
Design/methodology/approach – This paper is a conceptual review of the business case for
management accountants to engage in accounting for sustainable development. The paper
provides a framework for sustainable development, and uses arguments from literature to
identify the roles of management accountants in accounting for sustainability by conducting
interviews and surveys of management accountants from various organisations. The study is
informed by legitimacy theory.
Findings – Management accountants of small medium organisations in New Zealand play a
limited role in accounting for sustainable development; compared to management
accountants of larger organisations. The correlation between the type of organisation and
their overall goals for achieving sustainability are closely linked with the roles the
organisations’ management accountants occupy in accounting for sustainability.
Research limitations/implications – This research is limited to only examining the roles of
management accountants in sustainable development.
Practical implications – This study may help management accountants, of both small-
medium and larger organisations, to advance accounting for sustainability by exploring the
issues that have deterred such advancement. The pre-existing literature and the empirical
evidence gathered from this topic suggest that further research is needed to better understand
the emerging roles of management accountants as facilitators of decision making within
organisations concerned with issues of sustainability.
Originality/value – This paper provides a review of current debates and positions of
accounting for sustainable development as well as the application of the discussions by
management accountants in accounting for sustainability.
Key words: management accountants, sustainable development, accounting, New Zealand.
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Management Accountants’ Role in Accounting for Sustainability
1. Introduction
Since the 1990s, much research has focussed on the issue of accounting for sustainability
where on a global scale, this issue became “the contested terrain of global planetary
desecration, of human and other species suffering and of social justice addressed through the
language of sustainability, sustainable development and commerce” (Gray, 2010, p. 48).
And yet, “it is increasingly well-established in the literature that most businesses reporting on
sustainability and much business representative activity around sustainability actually have
little, if anything to do with sustainability” (italics for emphasis, ibid, p. 48). It is further
presented by Gray (2010) that there needs to be a more nuanced understanding of what
‘sustainability’ actually is and how, if at all, it can have any empirical meaning at the level of
the organisation. This is concerning given that more than one and a half decade ago, Milne
(1996) argued that “corporate accounting in general, and management accounting in
particular, have ignored a wide range of non-market activities that are associated with private
sector organisations and their impact on the biophysical environment” (p. 135), and that “the
formal decision analysis invoked in traditional management accounting neglects the social
cost and benefits of corporate activities” (ibid). It may appear that little has changed with the
status quo. Gray and Bebbington (2000) write that management accountants were cajoled into
responding to environmental issues. They explain that accountants have not only been slow
but also reluctant to initiate the changes that environment management systems (EMS)
require of the accounting system.
Extensive research literature shows that there is an overwhelming support over the
need for sustainability, with proponents pushing for better quality information in regards to
& Frost, 2000). These bounds and norms change over time, requiring the organisations to be
also responsive. Legitimacy has been defined by Lindblom (1994, p.2) as:
...a condition or status which exists when an entity’s value system is congruent with the value of the larger social system of which the entity is a part. When a disparity, actual or potential, exists between the two systems, there is a threat to the entity’s legitimacy.
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Brown and Deegan (1998) further report that if an organisation cannot justify its
continued operation, then the community may revoke its “contract” to continue its operations.
This may take form such as consumers reducing or eliminating the demand for the business
products, factor suppliers eliminating the supply of labour and financial capital to the
business or constituents lobby government for increased fines, taxes or laws to prohibit those
actions that do not conform to societal expectations (Brown & Deegan, 1998). The business
firms therefore need to disclose sufficient information for society to evaluate whether it is a
good corporate citizen (Guthrie & Parker, 1989).
Legitimacy can be considered a condition or status (Brown & Deegan, 1998). It is a
condition or status that persists when an entity’s value system is congruent with the large
social system’s value system of which the entity is a part. When a disparity, actual or
potential exists between the two value systems, there is a possibility of threat to the entity’s
legitimacy. Deegan (2002, p.292) reports that: “organisations draw on community resources
and output both goods and services and waste products to the general environment.” In order
to allow for the organisation’s existence, society would expect benefits to exceed costs
(Deegan, 2002). Legitimacy theory posits that external factors influence corporate
management to seek to legitimise their activities. Hence, corporate management and
management accountants would react to community expectations. The stakeholders within a
community shape what activities, companies, as members of that community should carry
out. These activities should be carried out within the boundaries of what is perceived to be
acceptable to that community.
Legitimacy is a source of resource for an organisation’s survival (Oliver, 1991; Meyer
& Rowan, 1977). Organisations perceived by stakeholders to be legitimate find it easier to
attract economic resources as well as gaining the social and political support necessary for
Do analysis on supply chain for sustainability risk
12 3 12 3 38 10 19 5 19 5 3 3 3.21
Develop organisation systems to excrete least amount of waste
0 0 27 7 15 4 42 11 16 4 2 4 3.41
Develop organisation systems to become more resource efficient
8 2 0 0 23 6 46 12 23 6 1 4 3.75
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5.2 Interview evidence
When the management accountants were asked whether they accepted the conventional
definition of sustainable development all three management accountants agreed with the
definition, and yet continued to provide a further explained synopsis of the concept. The
conventional definition for sustainable development is “development which meets the needs
of present without compromising the ability of future generations to meet their own needs”
(Brundtland, 1987). An interviewee from small-medium enterprises (SMEs) believed that
sustainable development was a ‘queue’ for society to start improving on technological
advancements towards sustainability, of reducing consumption of resources, and excretion of
waste materials. Another interviewee of SMEs added that the concept could only be achieved
if organisations were the first to respond, as the interviewee thought it would be highly
difficult for consumers to act in a sustainable manner.
The interview results revealed when asked whether the organisations had any goals
for achieving sustainable development, interviewees from SMEs did not have any defined
organisational goals toward achieving sustainable development. Instead, their organisations
involvement towards sustainable development was limited by the organisations cash
expenditure patterns. The organisations would achieve sustainable development; provided
achieving sustainable development would reduce consumption of resources, and hence
expenses. In contrast, interviewee from large organisation did have an organisation wide goal
towards achieving sustainability which was ‘to reduce carbon emissions, forming strong
community partnerships, increasing financial literacy across the people of New Zealand,
advocating an ethical supply chain, encouraging a fit and healthy lifestyle of our people,
providing access to capital, delivering responsible, fair and quality service to our customers.’
Some organisations and management accountants’ contributions towards sustainable
development have been positive through implementing organisational goals for achieving
sustainability. However, for some other organisations that is as far as their contributions goes
with SME interviewees showed little evidence of sustainability reporting. Both interviewees
of SMEs indicated that engaging in sustainability reporting was too much of a burden, with
their roles within the organisations negating the use of Triple Bottom Line reporting, or the
use of benchmarking standards such as the Global Reporting Initiative. The role of
management accountants in small medium organisations is reflective of upper level
management decision-makers, as an interviewee pointed out that Triple Bottom Line
reporting is not important to their organisation, as social and environmental factors are
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aspects that their managers do not worry about. Yet in contrast, interviewee of large
organisation’s role did include preparing sustainability reports and comparing sustainability
practices against the Global Reporting Initiative, and London Benchmarking Group. This
may be in order to maintain a sound image of the organisation amongst stakeholders in order
to preserve legitimacy for the organisation.
The interviewees were also asked what their roles were in accounting for
sustainability within their organisations. Two distinct forms of management accountants’
roles emerged; those management accountants of small medium entities vs. large organisation
management accountants. Interviewees from SMEs did not have dedicated roles in
accounting for sustainability, instead their roles followed the traditional roles of management
accountants of producing managerial reports, preparing cost benefit analysis, preparing
dispatch schedules, and recycling of organisation resources such as paper. In contrast,
management accountant from a large organisation’s role entailed managing environmental,
community, people, supply chain and customer metrics, and this role was influenced by the
organisation’s goal for achieving sustainability. This shows that the two management
accountants from small medium entities tend to have subtle roles emphasising the use of
sustainable development practices, compared with management accountants and their roles in
the larger entity. A clear link was evident from interviewing management accountants of two
SMEs that their roles in sustainability development were linked with their organisations’
ability to finance and gain benefits from sustainability like practices.
Interviewees from SMEs also showed limited future plans towards achieving
sustainable development. As when the interviewees were asked what their roles and their
organisations future plans were in achieving sustainability, mixed results were gathered.
Interviewees from SMEs did not have any clear future goals or policies towards achieving
sustainability, except for those roles surrounding the reduction of consumption for finite
products, and through roles of improving efficiency and productivity. In contrast, interviewee
of large organisations future plan for achieving sustainability included; “implementing a
carbon management software system and creating behaviour changing software systems.”
This carbon management software aims to reduce the organisations carbon footprint, by
monitoring those activities, which affect sustainability, and the organisations carbon foot
print. For example, travelling to clients, the type of vehicles used, and the amount of
electricity recycled using solar energy.
Often organisations’ management accountants faced challenges with achieving
sustainable development. One of the management accountants posed a question as to ‘how
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you prioritise your resources’, with another management accountant stating that extensive
costs was the biggest obstacle for trying to achieve sustainable development. An interviewee
from SME pointed out that the central challenge was prioritising goals. The interviewee
thought sustainable development was a long-term goal with high short-term costs, where as in
contrast to this goal is the goal of short-term profit maximisation which many organisations
seem to use. The interviewee also argued that ‘when is enough, enough’ in terms of achieving
sustainability, or must an organisation continue to strive for sustainable development into the
foreseeable future. Similarly, another interviewee from SME stated that ‘costs’ were a big
problem in achieving sustainability, as the interviewee said;
ironic isn’t it, our jobs as management accountants is to try to integrate sustainability software systems; yet simply management accounting like tasks such as cost benefit analysis limits the integration. The interviewee also stated that the benefits associated with achieving sustainability
is limited as often customers do not distinguish between sustainability achieving
organisations, and non sustainability achieving organisations; hence there is no flow into
revenue. In contrast, interviewee from a large organisation stated:
Often people are too scared off and think it is too hard and that one person cannot make a difference, people see it as solely a green agenda, having to buy it in from the top of the organisation. The interview findings showed that interviewees from SMEs held similar views on
sustainability; whilst the interviewee from a large organisation held contrasting views. For
example, interviewees from SME believed that no organisational commitment was required
to achieve sustainable development, also both interviewees held similar definitions of the
concept of sustainability development, which was different from that defined by in the 1987
Brundtland report. Interviewees of SMEs definition of sustainability were that to be
sustainable organisations should be the first to make the move; they also believed that
sustainability did not require an organisational wide commitment. In contrast, interviewee
from a large organisation believed that an organisational wide commitment was required to
achieve sustainability, and this resonated through her organisations goal for achieving
sustainable development. In addition, this interviewee’s definition of sustainability mirrored
that of the Brundtland report. The role of management accountants in small-medium
organisations are limited, and often influenced by the lack of organisational wide goals for
achieving sustainability.
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Porter and Kramer (2006) suggest, “successful corporations need a healthy society...a
healthy society creates expanding demand for business, as more humans are met and
aspirations grow” (p. 83). This implies that organisations that commit to sustainability
reporting should yield financial returns through the growing aspirations of society to support
sustainable development. This will also aid them to gain legitimacy in the eyes of external
stakeholder and promote the image of organisation that it is truly socially responsible.
Organisations aspire for sustainable development practices in order to gain external
legitimacy from stakeholders (Deegan, 2002). The next section brings the narrative together
and concludes the paper.
6 Discussion/Conclusion
The purpose of this paper is to explore the role of management accountants in accounting for
sustainable development. An organisation wide commitment for achieving sustainable
development would often resonate throughout the organisation into the roles of management
accountants in achieving sustainable development. The surveys and interviews showed
varied results as to what the main role of management accountants is in accounting for
sustainable development. However, it was clear that there is a gap between the role described
in literature, and current practices used by management accountants in accounting for
sustainable development. For example, the literature revealed the use of management
accounting tools such as Environmental Management Accounting Systems; yet the surveys
and interviews show that management accountants currently do not use such tools to achieve
sustainable development. Employee retention is also advocated by the literature through
sustainable development practices which our evidence could not find support in the New
Zealand context.
Management accountants’ roles in accounting for sustainability, is to act as facilitators
of decision making for upper level management (Burnett & Hansen, 2008; Berry et. al,
2009; Albelda, 2011). This means incorporating Environmental Management Accounting
Systems to use as a basic structure for achieving sustainable development practices, and
guiding decision making within the organisation in order to gain legitimacy from the wider
society. However as the interviews showed; small medium organisations management
accountants seem to place lesser importance of achieving sustainable development, and this is
evident through the types of practices the management accountants engage in. The roles of
management accountants in smaller organisations seem to be dedicated around the traditional
roles of management accountants, as stated by Parker (2000), which included producing
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managerial reports, preparing cost benefits analysis, dispatch schedules etc. Although there
were glimpses of actions that showed their roles were sustainability driven, much of the
smaller organisations discouraged sustainable development practices. In contrast larger
organisations seemed to play an active role in accounting for sustainable development, with
management accountants roles within the organisation specifically applicable to achieving
organisation wide sustainability. Although the results showed that some larger organisations
do not use environmental management accounting systems, the interviews showed that
management accountants of larger organisations seemed to act as facilitators of upper level
management in sustainable development. Hence, their roles within the organisation included
the traditional management accounting functions as described by Parker (2000), but also
included, a role as facilitators of decision making as suggested as the new emerging role by
Berry et al, 2009).
The survey results were suplemented by the interview evidence, as to the roles of
management accountants in sustainable development. On average the highest ranked category
for management accountants role in sustainable development was in ‘developing
organisations systems to become more resource efficient.’ The organisational backgrounds of
most management accountants surveyed shows that on average approximately 42% of the